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US crude oil stocks increased 1.2 MMBbl last week. Gasoline inventories decreased 1.5 MMBbl, while distillate inventories increased 0.1 MMBbl. Yesterday afternoon, API reported a crude oil draw of 4.5 MMBbl, alongside gasoline and distillate withdrawals of 3.1 MMBbl and 0.4 MMBbl respectively. Analysts were expecting a crude oil draw of 3.2 MMBbl. The most important number to keep an eye on, total petroleum inventory levels, posted an increase of 3.3 MMBbl. For a summary of the crude oil and petroleum product stock movements, see the table below.

US crude oil production was estimated to remain at the same level from last week, per EIA. Crude oil imports were up 699 MBbl/d last week, to an average of 9.1 MMBbl/d. Refinery inputs averaged 17.7 MMBbl/d (163 MBbl/d less than last week), leading to a utilization rate of 97.1%. The report is bearish due to the unexpected crude oil and total petroleum stocks build. Prompt-month WTI was trading down $0.57/Bbl, at $73.57/Bbl at the time of writing.

WTI prices traded in the $73-$75/Bbl range last week. The recent efforts by the Trump administration to disrupt Iranian crude exports, as well increasing worries on supply disruptions from Libya, Venezuela and Canada are supporting prices. Prices tracked real close to $75/Bbl on Tuesday after the Iranian President appeared to threaten disrupting oil shipments from the region if the US government continued to press all countries to stop buying Iranian oil.

Prices are also continuing to get support from supply outages from major producing countries. The force majeure in Libya will most likely be reducing its output by nearly 850 MBbl/d, while Canada’s output is down nearly 360 MBbl/d due to outages in oil sands facilities. Although these outages will be temporary and will affect supply in the near term, they are certainly increasing the bullish sentiment and will continue to support prices.

In addition to the temporary supply outages, declining Venezuelan production and impact of Iranian sanctions are still threats to supply levels will continue to increase bullish sentiment. However, recent tweets from President Trump pressuring Saudi Arabia to increase output as much as 2.0 MMBbl/d will keep a lid on prices. OPEC, during their June 22 meeting, had decided to increase output by around 700 MBbl/d, and Saudi Arabia has already increased production since the meeting.

The market expects Saudi Arabia to pump more oil, but it is unclear how Saudi Arabia will react to President Trump’s demands to bring back an additional 2.0 MMBbl/d in order to push prices down. In addition to Saudi Arabia, Russia will be looking to increase production. At this point, the market is stuck between determining if production increases from Saudi Arabia, Russia and the US will be enough to offset long-term declines from Venezuela and Iran and short-term disruptions from Libya and Canada. Until additional information materializes, prices will be volatile.

Prices for WTI blew out of the recent range and closed at highs not seen since November 2014. However, due to over-bought levels and President Trump’s tweets, it is likely the open will be weaker early this week. Until the market can understand what the quota easement will likely mean, and Iranian sanctions materialize, WTI prices will remain volatile. Eventually, after the volatility recedes and consolidation commences, the quota easement and continued US growth leads Drillinginfo to believe that the supply and demand for crude may force a retracement of prices to mid-$60/Bbl level.

Petroleum Stocks Chart

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